On May 30, U.S. DOT issued proposed revisions to its DBE
regulations, which would replace the current regulations in
response to the Supreme Court's ruling in Adarand v. Pena. U.S.
DOT sought comments on a variety of issues to be received no
later than July 29. Among other things the proposed changes
would modify the overall goal, contact goal, and good faith
effort provisions; and add provisions seeking to diversify the
DBE participation from just specialty subcontracting.
to highlight specific revisions in the proposed regulations,
other than eligibility issues, that will directly impact
contractors. On paper, the proposed revisions create a more
flexible program. I suggest contractors take an active role in
their state shaping the revised program.
The following are
the revisions, other than those on DBE Certification, that may
most significantly affect contractors:
-- For the first time
a state DOT, or other recipient may seek a waiver authorizing it
to operate a DBE program different than the one described in the
-- Prime contractors will be required to make
prompt payment to their DBE subs within 10 days after being
-- State DOTs and other recipients will be required to
establish a diversification mechanism to discourage DBE
concentration in specialty contracting fields.
(annual) goals must be set in one of three ways, each attempting
to compare the number of DBEs with the total number of DBEs and
-- State DOTs and other recipients must meet as
much of their overall goal as they can by outreach, technical
assistance and other similar methods.
-- Any portion of the
overall goal that cannot be met by outreach, etc., must be met
either by DBE contract goals (the current system) or evaluation
-- For evaluation credits, DBE primes would be
given a 1%-10% price advantage; or, a non-DBE prime meeting a
DBE contract goal will receive between 1%-10% price advantage
over the low bidder who does not meet the DBE contract goal.
-- Recipients may determine good faith efforts based on
submittals with the bid or submittals after the bid.
State DOTs may establish a reasonable price differential between
DBE and non-DBE subcontractors for good faith efforts
determinations. (e.g. a state DOT could establish in its bidding
documents that prime contractors are not obligated to accept
quotation from DBEs that are 1%-10% higher than the lowest
-- The low bidder who does not meet the DBE
goal, and if the state determines it has not made a good faith
effort, must be given an opportunity for an administrative
-- Actual goal achievement will be reduced
because any amount subcontracted by a DBE subr to a non-DBE will
not count towards the DBE contract goal.
-- The value of
materials purchased or equipment leased by a DBE sub from a
non-DBE firm (other than the prime contractor or its affiliate)
and used by the DBE in performance of its subcontract counts
toward the DBE contract goal.
-- Decisions on commercially
useful functions are subject to review by the operating
administration (e.g. FHWA).
-- A DBE is presumed to have not
performed a commercially useful function if it doesn't perform
at least 30% of the total cost of its contract with its own
-- Prime contractors may not terminate DBE
subcontractors for convenience and perform the work with its own
forces or subcontract to a non-DBE, absent prior written consent
by the state DOT.
-- If a DBE is decertified after the prime
executes a subcontract with the firm, then the prime may
continue to use the firm and receive DBE credit, but the state
DOT will not be able to count the portion of the work done by
the DBE after being decertified towards its overall DBE goal.
Problems with DBE goals
I believe these proposed
regulations will continue two basic problems: unrealistic goals;
and the quota approach to meeting those goals. Establishing the
overall DBE goals based on the number of DBE firms compared to
the total of DBE and non-DBE firms, will lead to unregulated
high goals. Second, if the state DOT gives a percentage price
advantage to prime contractors who meet the DBE goals over the
low bidder who does not, a defacto quota system will result and
good faith efforts will be meaningless.
Fortunately, a state
DOT or other recipient can request a program waiver authorizing
it to operate a DBE program that achieves the objectives of U.S.
DOT's regulations by means that differ from one or more of the
requirements of the subparts on administrative requirements; and
goals, good faith efforts, and counting.
A second fortunate
aspect of the U.S. DOT proposed regulations is that the state
DOT, or other recipient, must meet as much of the overall goal
as it can by using outreach, technical assistance, and other
methods to facilitate DBE participation. If the entire goals can
be met by these methods, then there is no requirement to set
contract DBE goals.
The proposed regulations present many
opportunities for state DOTs and state contractors associations
to craft a program that will meet U.S. DOT's stated purpose: "To
assist the development of firms that can compete successfully in
the marketplace outside the DBE program." If contractors remain
on the sidelines they may find the application of the proposed
regulations more adversely affects them than the application of
the current regulations.
Parvin is a shareholder in the law
firm of Jenkens & Gilchrist, which has offices in Austin,
Dallas, Houston, and San Antonio, Texas, Washington, D.C., and